Having clarity around invoicing is beneficial for both vendors and customers. Customers can issue remittance advice slips to help suppliers match an invoice to a payment. On the other hand, suppliers can request remittance advice to optimize their accounts receivable processes.
Remittance advice plays an important part in helping accounting teams match incoming payments to the right invoices. However, sourcing and interpreting remittance advice can be challenging, as there is no standardized format that all companies use for remittances. AR staff ends up doing manual matching, which is time-consuming.
To prevent such problems, learn more about remittance advice definition and why it matters for your accounts receivable processes.
What Is Remittance Advice?
Remittance advice is a crucial document that serves as a communication tool between customers and businesses. The term “remittance” refers to a payment directed to or from another party in the form of bills, invoices, or international transactions. It can also cover personal money transfers to friends and family.
Customers use remittance advice to inform suppliers or vendors what invoice the payment is for or confirm that payment is being processed. Such information will help businesses do month-end reconciliation of their accounts receivable records.
The document should contain details such as:
- Customer’s name and address
- Supplier’s name and address
- Payment amount
- Payment date
- Payment method
- Payment purpose
- Invoice number
- PO number (if any)
- Product and service description
Some remittance advice can also be more detailed, and they usually capture:
- Payment reference number
- Document number
- Gross and net amounts
- Discounts applied
- Payment deductions
- Withholding amount
Example of Remittance Advice
To provide you a clearer illustration of remittance advice, take a look at the example:
Types of Remittance Advice
Remittance advice comes in different forms, namely:
- Basic remittance advice is a printed paper that includes only the invoice number and payment date. It is also the easiest document to make, usually accompanied by a check for the vendor.
- Removable invoice advice is a document that the vendor sends altogether with the invoice, along with a detachable remittance slip for the customer to fill in. The payer will send this back with a check if the payment is manual, or input it online if the payment is digitized.
- Scannable remittance advice is an electronic file that stores and retrieves payment records, allowing vendors to access it digitally.
Why Is Remittance Advance Important for Businesses
While remittance advice is not mandatory, it’s definitely helpful to keep them handy for a couple of reasons:
- Better invoice formatting: Remittance advice is relatively easy to make, and customers can simply reproduce the same format across all the invoices they’re paying.
- Better record-keeping: Remittance advice is useful for identifying which payments are associated with which accounts.
- Better cash flow management: Remittance advice is crucial for businesses to manage accounts receivable and accounts payable for effective cash flow maintenance.
- Better reconciliation: Remittance advice helps suppliers match payments to the correct invoices, saving time on monthly or yearly book closing.
- Better customer relationships: Remittance advice can guide businesses in providing customers accurate and timely information about their payments, preventing miscommunications.
How to Create a Remittance Slip
To create a remittance slip, here are the steps to take:
- Gather payment information: This includes the customer’s and supplier’s information, invoice number, as well as the date and amount of the payment.
- Choose a template: Look for an online template or create one with a word processing software such as Microsoft Word or Excel. Make sure to add a logo or your company branding for a more professional look. Preferably, use the same format to avoid confusion.
- Double-check for accuracy: Make sure that all the information is correct or else there’ll be back-and-forth communications.
- Leave notes if necessary: Add a thank you note or any other relevant information.
- Finally, send the slip: For this, you can do it via mail or via a check.
There are various methods to send remittance advice, including:
- Paper documents
- Excel sheets
- EDI
- Check
- Accounts payable portal
As more businesses are adopting accounts payable software, it is likely for customers to send remittance advice through the AP system, which can be easily integrated with the existing accounting tool. Accounts receivable professionals may receive automatic emails that notify the status of the invoice, whether it’s waiting for approval or already paid.
Remittance Advice Best Practices
In order to use remittance advice effectively, businesses should adhere to the following best practices:
- Use digital remittance advice: Compared with paper-based remittance advice, electronic remittance advice is easier to make and more secure.
- Check for discrepancies: Investigate and resolve any discrepancies in accounts receivable records as soon as possible.
- Give clear instructions: Make sure customers know what information to include in their remittance advice.
- Implement automation: Improve efficiency and reduce errors by automating processes where possible.
- Maintain accurate records: Ensure that accounts receivable records are accurate by maintaining up-to-date records of the remittance advice.
- Provide employee training: Train staff members responsible for handling receivables and payables to effectively use remittance advice, as it can help with their tasks and improve team productivity.
Challenges with Remittance Advice
Here are the most common challenges that customers and vendors experience when dealing with remittance advice:
1. Discrepancies in Formats and Sources
Retrieving remittance advice from multiple customers can be challenging due to the lack of standardized formats and the possibility of not receiving remittance advice at all. AR staff may need to contact customers for clarification, which can be time-consuming. Additionally, retrieving remittance advice from different sources and formats, especially from AP automation platforms, can be a daunting task as the customer base grows.
2. Illegible Remittance Advice
Remittance slips can be illegible due to blurred images, missing characters, or handwriting. The varying formats of remittance slips can also make it difficult for accounts receivable staff to apply payments correctly.
3. Complex Matching Process
Matching remittances with open invoices can be a complicated process due to factors such as one payment covering multiple invoices, short-paid invoices, and missing remittance advice. These situations can result in significant amounts of work for accounts receivable staff, including fact-finding, troubleshooting, and communication with customers.
Automate Payment Collections with Peakflo
If you feel like your company’s wasting a lot of time chasing invoice payments and maintaining accurate records, it’s time to stop.
Peakflo provides AR, collection, and sales teams to collect invoice payments faster with automated workflows that can trigger multi-channel reminders based on an escalation matrix.
By integrating your accounting software with Peakflo, we do the data matching for you. This way, you can save 100 man-hours a month on tedious reconciliation and focus on what really matters.
In any business, time is as important as money. Save time, save money with Peakflo today.
